Mining sector sneezes as global outlook remains depressed

ZIMBABWE’S miners are singing the blues as the capital-intensive sector feels the pinch of falling international commodity prices coupled with problems at home that have seen key indicators such as the extractive sector’s contribution to the Gross Domestic Product and exports on a slippery slope, a study by the Chamber of Mines of Zimbabwe has shown.

TAURAI MANGUDHLA

Output for most minerals fell in 2015 due to weakening prices and macro-economic challenges such as lack of capital, erratic and unsustainable power tariffs as well as high costs of labour that have rendered extracting a number of minerals unprofitable.

Official statistics also indicate the total value of mineral shipments slid steadily between 2012 and 2015 from US$2,2 billion to US$1,8 billion due to low output and subdued prices on the global market.

Contrary to Finance minister Patrick Chinamasa’s forecasts of a 2,4% growth in the mining sector, the study predicted a modest 1,6% growth in output.

Mining sector output recorded negative growth around -3,4% and -2,5% in 2014 and 2015 respectively as most minerals recorded declines in output, led by chrome which reported the largest decline of 48% in output followed by coal and diamonds at -31% and -30% respectively. A 30% boon in production was only recorded on gold followed by a modest 1% growth in platinum while copper production remained flat in the period under review.

Profitability for the mining industry has declined across most minerals, with most respondents of the study recording losses during the period under review. Only 20% of the respondents during the survey forecast profitability in 2016 down from 30% recorded in 2015 and 40% in 2014. Factors undermining viability as ranked by the respondents are shortage and high cost capital, low commodity prices, Shortage and high cost of power, high wage costs, followed by high procurement costs including erratic supply and finally high and static royalties. The sector, according to the survey, requires US$3,8 billion investment. Out of this, US$2,6 billion will be for development investment and US$1,2 billion just to remain afloat.

Mining industry capacity utilisation also fell from 71% in 2014 to 60% in 2015.

“About 90% of the respondents reported that they encountered difficulties in raising the requisite capital for staying in business or ramp up production in 2015. 62% of these respondents said that they were using antiquated and inefficient equipment,” reads independent research commissioned by the Chamber of Mines of Zimbabwe titled The State of the Mining Industry Survey: Report on Findings 2015. The report was unveiled yesterday in Harare.

Mining’s contribution to GDP stood at 10% in 2013 before declining to 9,15% in 2014 and 9% in 2015, according to the chamber’s report.

Mining’s contribution to exports stood at 57% in 2012 and remained flat at 56% in 2013 and 2014 before sliding to 50% in 2015.